It has been demonstrated that the localization of the cytochrome P-450 system to select cell-types in the lungs predisposes those cells to toxicity by xenobiotics requiring metabolic activation. Regiospecific hydroxylation of 2-acetylamino-fluorene (AAF) was used to monitor monooxygenase activity in isolated rabbit lung cells. Following isolation, the cells were separated into 7 different fractions according to size by centrifugal elutriation. Macrophages were recovered from the lungs by lavage and examined in parallel with the parenchymal cell populations. The resulting fractions were assayed for AAF hydroxylase activity and were examined for the presence of endothelial cells (antiotensin converting enzyme), alveolar type II cells (modified Papanicolaou stain), polymorphonuclear leukocytes (modified Papanicolaou stain), bronchiolar Clara cells (nitroblue tetrazolium stain) and ciliated cells (phase contrast microscopy). Highest hydroxylase activities were seen in the cell fraction containing the largest percentage of Clara cells. The activity profiles provided evidence for a population of cells not correlating with either alveolar type II cells or Clara cells but possessing substantial monooxygenase activity. The alveolar macrophage almost exclusively hydroxylated AAF in the 9 position and the cell fraction containing the higher percentage of endothelial cells metabolized AAF the least. Pretreatment with 2,3,7,8-tetrachlorodibenzo-p-dioxin (TCDD) preferentially induced the 7-hydroxylation of AAF and either did not alter or decreased the rate of formation of the other hydroxy metabolites. An exception was seen in fraction 1 where TCDD induced the hydroxylation of AAF to all products except 3-hydroxy AAF. Analysis of the metabolite profiles over the 8 cell fractions used in the present study suggested that at least 4 monooxygenases may be present in rabbit lung.